New York Markets After Hours

Dollar climbs back towards multiyear highs vs. yen

Swiss franc hits 13-month low versus euro

By

DeborahLevine

WilliamL. Watts

SAN FRANCISCO (MarketWatch) — The dollar recovered some ground on Monday, climbing back towards a multi-year high against the Japanese yen hit following under reports the Bank of Japan will give in to government pressure to raise its inflation target.

Reports said the Bank of Japan would agree to Prime Minister Shinzo Abe’s demand for a firm 2% inflation target, implying significant further monetary easing. The bank currently has a 1% target. The central bank would likely announce the 2% target after discussing details at its next policy meeting on Jan. 21-22, according to a Kyodo News report.

“For the Japanese yen, the weakening trend remains a byproduct of the continued reference to the prospective 2% inflation target, highlighted as an immediate target and not one for the medium term. Anti-deflationary policies are of course in addition to the prospective political appointee to the BOJ governorship; a person who according to…Abe, will be like minded,” said Jeremy Stretch, currency strategist at CIBC in London.

The prospect of renewed action to rid Japan of deflation sent the dollar
USDJPY, -0.07%
as high as 89.64 yen, according to FactSet, its highest level since June 2010. The dollar slowly slipped to ¥89.46,up from ¥88.23 in North American trade late Friday.

The greenback has gained 16% on the yen in the last 12 months since it became clear a new government would be elected, which would more aggressively push for stimulus and easier monetary policy, including policies that would weaken the yen.

Against the yen, the euro
EURJPY, -0.03%
briefly breached ¥120 for the first time since May 2011, later easing to ¥119.50. On Friday, the European currency changed hands for ¥119.03.

“For now, it remains hard to stand in the face of ongoing yen weakening bias, although we would be wary of [British pound/Japanese yen] and [Australian dollar/Japanese yen] as both currencies face their own domestic concerns,” Stretch wrote in a note to clients. “But while we would continue to look for a yen short bias, there are starting to be some siren voices, even within Japan, about the extent of the move.”

The dollar initially lost ground Monday, after briefly turning positive near the start of U.S. trading as U.S. stock futures softened. The dollar tends to gain ground due to haven-related flows when investors become more risk averse.

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During the final White House press conference of his first term, President Obama spoke about his strategy to eliminate the deficit and increase revenues. Photo: Getty Images.

The ICE dollar index
DXY, +0.48%
— which measures the U.S. unit against six major currencies — traded at 79.460, down slightly from late Friday’s 79.566.

HSBC senior forex strategist Daragh Maher said comments from key Federal Reserve members in the coming days could paint a picture of loose policy, creating a “risk-on” mood that tends to encourage dollar selling.

“The Fed speaker calendar is dominated by doves in the early part of the week. These should provide reassurance that the Fed is in no rush to turn off the liquidity tap despite these early signs of encouragement on activity,” Maher wrote in a note Sunday.

Swiss franc jumps

The euro extended gains to 0.9% versus the Swiss franc
EURCHF, +0.02%
its biggest jump since November 2011.

The euro bought 1.2332 Swiss francs, its highest level since December 2011.

The move should cheer the Swiss National Bank, which in 2011 declared it was prepared to buy unlimited amounts of foreign currency to stop the appreciation of the franc against the euro, setting a floor for the euro/Swiss franc exchange rate at 1.20 francs. The SNB has regularly repeated the warning.

“The SNB has won its battle, for now, which tells us more about capitulation of euro bears than capitulation of Swiss franc bulls, I suspect,” said Kit Juckes, head of foreign exchange at Société Générale.

The British pound
GBPUSD, +0.06%
slipped to $1.6078 from $1.6127, while the Australian dollar
AUDUSD, +0.01%
improved to $1.0564 from $1.0537 at the end of last week.

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